As world oil prices bounce around short of the symbolic $US100 a barrel mark, a new report has emerged suggesting that prices much higher than that will confront the world economy in coming decades.
World prices climbed above $US98 a barrel this week on a combination of a weak US dollar, threats to supply, Middle East tensions and speculation by financial investors: they then eased on profit-taking and a realisation the immediate supply picture was not as constrained as thought.
In the report the International Energy Agency warned that China and India will sap world oil supplies faster than previously thought.
The summary of the report makes gloomy reading if you are an oil consumer, car driver, environmentalist, or a believer in energy efficiency.
There's a lot about the latter, but nothing really concrete and the overwhelming tone of the report is that the pressures on global supplies of oil are going to get worse in coming years, with all the accompanying price tensions.
More coal will be consumed, especially in China and India and oil supplies will be concentrated in the most unstable part of the globe: the middle East with all the tensions of religion, wealth and social unrest that we see now in countries like Iraq and Iran.
But there is a ray of hope expressed in the report which says that if Governments implement all the policies they are considering today over the next 20 years it could make huge savings in greenhouse emissions, lower coal and oil consumption, and boost economic growth.
The IEA said in its yearly forecast that under current policies the world will use 50% more energy by 2030 than it uses today, with 45% of that demand coming from just India and China.
The two countries are expected to use nearly four times more oil by 2030, and IEA questioned the world's ability to meet such rampant demand.
"Although production capacity at new fields is expected to increase over the next five years, it is very uncertain whether it will be sufficient to compensate for the decline in output at existing fields and meet the projected increase in demand," the report said.
"A supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices, cannot be ruled out." (http://www.iea.org/Textbase/press/pressdetail.asp?PRESS_REL_ID=239)
The IEA said in its report that while world leaders have pledged to act to change the energy future and some new policies are in place, "the trends in energy demand, imports, coal use and greenhouse gas emissions to 2030 in this year's World Energy Outlook are even worse than projected in WEO 2006."
"China and India are the emerging giants of the world economy.
"Their unprecedented pace of economic development will require ever more energy, but it will transform living standards for billions.
"There can be no question of asking them selectively to curb growth so as to solve problems which are global."
"The causes behind current high prices are complex. Many are short term, but there are longer term issues as well, including the concentration of demand in the transportation sector, the growing importance of the developing world in oil demand growth - particularly China and India which are the main focus of the World Energy Outlook 2007.
"Many of these constraints have implications for upstream and downstream development.
"Recent data reflect a tightening of oil market fundamentals, in particular the lowering of OECD stock cover.
"Stocks provide an important cushion between supply and demand - they add supply-side flexibility, reduce volatility and minimize the incentive for speculation.
"At current prices the market is signaling that stocks need to be higher - something that is in the power of producers to address. In the longer-term, there is little doubt that both producers and consumers share the responsibility to ensure more investment in supply and greater effort to improve energy efficiency.
"IEA member countries are committed to improving energy efficiency and to the promotion of alternative energy sources."
Nobuo Tanaka, the IEA's Executive Director of the International Energy Agency said the 2007 outlook report "demonstrates more clearly than ever that if governments don't change their policies, oil and gas imports, coal use and greenhouse-gas emissions are set to grow inexorably through to 2030 - even faster, in fact, than in last year's Outlook.
"These trends would threaten energy security and accelerate climate change."
The IEA said energy developments in China and India are transforming the global energy system as a result of their sheer size and their growing importance in international energy markets.
"Rapid economic development will undoubtedly continue to drive up energy demand in China and India, and will contribute to a real improvement in the quality of life for more than two billion people. This is a legitimate aspiration that needs to be accommodated and supported by the rest of the world", said Mr. Tanaka. "Indeed, most countries stand to benefit economically from China's and India's economic development through international trade."
But the consequences of unfettered growth in global energy demand are alarming for all countries.
If governments around the world stick with existing policies - the underlying premise of the WEO Reference Scenario - the world's energy needs would be well over 50% higher in 2030 than today.
China and India together account for 45% of the increase in global primary energy demand in this scenario.
Both countries' energy use is set to more than double between 2005 and 2030. Worldwide, fossil fuels - oil, gas and coal - continue to dominate the fuel mix.
Among them, coal is set to grow most rapidly, driven largely by power-sector demand in China and India.
These trends lead to continued growth in global energy-related emissions of carbon-dioxide (CO2), from 27 Gt in 2005 to 42 Gt in 2030 - a rise of 57%.
China is expected to overtake the United States to become the world's biggest emitter in 2007, while India becomes the third-biggest emitter by around 2015. China's per-capita emissions are estimated to almost reach those of OECD Europe by 2030.
Consuming countries will increasingly rely on imports of oil and gas - much of them from the Middle East and Russia.
In the Reference Scenario, net oil imports in China and India combined jump from 5.4 mb/d in 2006 to 19.1 mb/d in 2030 - this is more than the combined imports of the United States and Japan today
World oil output is expected to become more concentrated in a few Middle Eastern countries - if necessary investment is forthcoming. Although production capacity at new fields is expected to increase over the next five years, it is very uncertain whether it will be sufficient to compensate for the decline in output at existing fields and meet the projected increase in demand.
"A supply-side crunch in the period to 2015, involving an abrupt escalation in oil prices, cannot be ruled out.
"Government action can alter appreciably these trends. If governments around the world implement policies they are considering today,(as assumed in the report) global energy-related CO2 emissions would level off in the 2020s and reach 34 Gt in 2030 - almost a fifth less than in the Reference Scenario.
"Global oil demand would be 14 mb/d lower - a saving equal to the entire current output of the United States, Canada and Mexico combined. Measures to improve energy efficiency are the cheapest and fastest way to curb demand and emissions growth in the near term.
"The savings are particularly large in China and India.
"For example, tougher efficiency standards for air conditioners and refrigerators alone would, by 2020, save the amount of power produced by the Three Gorges dam. Emissions of local pollutants in both countries, including sulphur-dioxide and nitrous oxides, would also be reduced sharply.
Economic growth in China and India could turn out to be significantly faster than assumed in the Reference and Alternative Policy Scenarios, resulting in more rapid growth in energy demand, oil and gas imports and CO2 emissions.
In a High Growth Scenario, which assumes that China's and India's economies grow on average 1.5 percentage points per year faster than in the Reference Scenario, energy demand is 21% higher in 2030 in China and India combined.
Globally, energy demand rises by 6% and CO2 emissions by 7%. "In this case, it would be all the more urgent for governments around the world to implement policies to curb the growth in fossil-energy demand and related emissions", Mr. Tanaka said.
"The emergence of new major players in global energy markets means that all countries must take vigorous, immediate and collective action to curb runaway energy demand", said Mr. Tanaka.
"The next ten years will be crucial for all countries, including China and India, because of the rapid expansion of energy-supply infrastructure. We need to act now to bring about a radical shift in investment in favour of cleaner, more efficient and more secure energy technologies."
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